Bank of America takeover ends Merrill's independence

* All-stock merger initially values Merrill at $29/shr

* Merrill is third Wall Street firm to disappear in year

* Merrill shares rise, Bank of America shares tumble

By Jonathan Stempel and Elinor Comlay

NEW YORK (Reuters) - Bank of America Corp's (BAC.N) $50 billion acquisition of Merrill Lynch & Co IncMER.N marks the end of a storied name in American finance, but also creates the nation's biggest bank by far.

The purchase would end the 94-year independence of Merrill, Wall Street's third-largest bank, and pair it with a banking behemoth that has announced more than $150 billion of acquisitions in the last five years. Bank of America would pass Citigroup Inc (C.N), the largest bank by assets, in size.

Merrill shares jumped 19 percent, while Bank of America slid 14 percent at mid-day Monday.

Monday's merger deal came together in less than two days -- after Merrill Chief Executive John Thain called Kenneth Lewis, his counterpart at Bank of America, to propose a combination. The deal came as Thain, other top industry executives and officials from the U.S. Federal Reserve had huddled in emergency meetings in downtown Manhattan over the weekend to mull the fate of Lehman Brothers Holdings Inc LEH.N.

"We thought this was the strategic opportunity of a lifetime," Lewis, 61, said at a news conference with Thain in Bank of America's new offices in New York. The bank will remain based in Charlotte, North Carolina, Lewis said.

Bank of America agreed to pay 70 percent more than Merrill's closing price Friday. The shares had fallen precipitously in the last week as worries grew that it could become Wall Street's next casualty.

Lehman, the fourth-largest Wall Street investment bank, filed for bankruptcy protection on Monday.

Adding Merrill would more than double the size of Bank of America's investment banking unit, and give it the largest retail brokerage and a dominant position in wealth management. It also would get Merrill's 45 percent stake in the asset manager BlackRock Inc (BLK.N).

Bank of America was already the nation's largest retail bank, credit card issuer and mortgage provider -- following its July purchase of Countrywide Financial Corp.

The disappearance of Merrill would remove the third major New York-based financial services company in less than a year after Lehman and Bear Stearns.

A fourth, insurer American International Group Inc (AIG.N), is scrambling for capital because of losses on its mortgage-related debt.

Merrill shares jumped $3.14 to $20.19, while Bank of America fell $4.86 to $28.88, both on the New York Stock Exchange.